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Thursday, February 12, 2015

The Compact Process and CLA

One of the annual rites of winter and spring on campus is “the compact process.” Because there may be some mystery about this process to those not involved directly in it, I wanted to provide you with a basic briefing on the topic. My discussion won’t be short, but I can say without hesitation that it could have been much longer. Maybe that isn’t particularly reassuring. Please hunker down and read on.

Key Features of the Compact Process

The compact process serves as a basic budget check-in for all the administrative and service units on campus (IT, library, student services, Central offices, facilities, and so on) as well as the academic units (colleges and schools). In addition, the process can serve as a means to reallocate resources across campus.

In the fall, administrative and service units receive their compact instructions. These instructions allow the units to request new investments from Central. At the same time, the units must indicate how they will contribute toward President Kaler’s pledge to cut administrative and oversight costs at the University by $90 million over six years. Administrative and central units may also be required to make programmatic or service cuts to free up funding for new investments.

CLA and other academic units received their compact instructions in mid-January. The instructions provide all sorts of financial data—new fringe rates, anticipated tuition revenue, and so on. The instructions also tell us whether costs for the administrative and service units have increased, held steady, or decreased. Based on a formula, CLA is assigned a charge it must pay to the “cost pools” that funds these shared administrative and service units. For fiscal year 2015-16 (FY16), CLA will pay $88.7 million toward the cost pools, an increase of about $435,000.

As part of the process, the college submits a report to the university outlining our overall budgetary position, indicating items we are putting into consideration for the reallocation pools (described below), and requesting investments from the reallocation pools. The compact process moves fast—this material will be submitted in early March. Representatives from CLA will then meet with representatives from central administration in mid-March to discuss the report CLA has submitted. Later in the spring, we learn which of our proposed cuts were included in the reallocation pools and which were not, and we learn which investments we requested will be funded.

Reallocation Pools: Balancing the Budget
The other key part of the compact process is a reallocation exercise. Here, colleges put funds on the table to create a pool of funds that can then be reinvested across campus. In CLA, as in other colleges, these funds would correspond to activities that the college would shrink or discontinue. This year there are two such pools.

The first pool is necessary to balance the University budget. In order to advance the president’s pledge to reduce administrative spending and direct it toward mission, options for reducing spending on leadership and oversight (L&O) and mission support are preferred. Each college is given a target amount of spending—0.9% of its “operations and maintenance” (O&M) spending—that it has to put on the table for this reallocation pool. O&M funds in CLA are almost entirely comprised of tuition and state appropriations, with other miscellaneous income totaling less than 1% of O&M funds in FY15.

For CLA, the amount required for the reallocation pool for FY16 is $1.96 million. Next highest is the College of Science and Engineering at $1.53 million. If a college cannot meet the total through L&O funds, it can include items categorized as mission support and facilities and items categorized as mission. In the University’s most recent assessment of CLA’s spending (FY14), we spent 4.4% for leadership and oversight, 19.5% in mission support, 6.6% for student aid, and 69.5% for mission-related expenses.

Simply putting the items on the table for Central consideration does not mean they will be accepted for the reallocation pool. A college can explain why a particular cut would have significant negative consequences. The “Budget Five”—the provost, the chief financial officer, the vice president for research, the vice president for health sciences, and the budget director—will recommend to the president that some items be accepted for reallocation and other items not be accepted.

Colleges can request funds from the reallocation pool that has been created from this exercise. These requests would be to further and advance collegiate strategic priorities. As with the cuts a college offers toward the reallocation pool, some collegiate requests for new investments are recommended to the president for funding and some are not.

Assuming you are not yet asleep, I will continue. Please grab another coffee or tea.

Reallocation Pools: Strategic Plan Investments

As I mentioned above, this year there is a second reallocation pool, and this pool is specifically intended for advancing the University’s strategic plan for the Twin Cities campus. Twin Cities academic units have been assigned targets they must contribute toward this pool, but again, not all items a college offers will necessarily be accepted toward the pool. In this pool, items put on the table for Central consideration can be from any category: mission, mission support, or oversight and leadership. The intent is to create a pool of $10 million that can be used to advance ideas consistent with the University’s strategic plan. The idea is that furthering the strategic plan means discontinuing some things we do on campus and reallocating funds to other purposes that are more closely aligned with the plan.

CLA was given a target of $1.92 million. Next highest was again CSE with a total of $1.39 million. These targets are intended as a proportionate share of $10 million when accounting for the state appropriations and tuition that each college retains after paying their cost pools. As in the pool intended to balance the budget, reduce L&O costs, and reallocate those funds elsewhere, colleges are invited to submit proposals for investment from this strategic plan pool.

Implications for CLA

What does all this mean for CLA? First, we have to determine nearly $4 million that we will put on the table for consideration of being added to these two reallocation pools. This amount is about 2.8% of CLA expenses after the cost pools are excluded (our contribution to campus cost pools is about 40% of our overall budget). Second, we need to determine what we would request in investments from both of these pools. We are hard at work on both.

In addition to the work being done within CLA administration, I have requested investment ideas from the Council of Chairs and from the Goal Teams working on the five goals of our CLA Roadmap. I have also asked the Budget Advisory Committee, an arm of the CLA Assembly, to discuss and suggest principles for us to consider when we are determining what items to put on the table for potential addition to the reallocation pools.

In both the “stop doing” and investment sides of the equation, we must be guided in this process by alignment with our collegiate strategic priorities, vision, and goals, as outlined in October in my Road Ahead address and since then in the work of our CLA Roadmap Goal Teams. Recommendations from the Goal Teams will help guide collegiate decision making and will contribute to our consideration of investment priorities in the compact process. Each team has been asked to determine what we need to do to be great in their respective areas of student readiness, research and creative excellence, Grand Challenges leadership, diversity, and public and alumni engagement.

The Compact Process as a Planning Process

One story behind the story in the preceding paragraphs is that in the absence of increased discretionary revenue over and above inflation (whether through tuition and fees, state dollars, or donor gifts), reallocating among existing revenue is how both the college and the university pursues strategic objectives. Or, put differently, with a stable or declining amount of revenue, new spending is achieved by decreasing or eliminating spending in some current areas and moving it to other areas.

This reality is daunting and requires difficult choices. Great institutions make decisions about where they want to be and they focus their energies and align their budgets with their values and priorities. Even in the absence of the university compact process, we should always be thinking about what we are currently doing, what we want to be doing, and how we get from here to there. Anything less than that risks becoming “good enough is good enough” thinking and will not produce what we want to achieve.

The compact process is not easy, and with two reallocation pools this year’s model is particularly challenging, but it is our procedural reality and on the investment side it provides some opportunities. We have to use it, and our collegiate budget process, in a way that improves and strengthens the college, creating a better experience for our students, an excellent environment to thrive for our faculty and staff, a stronger reputation, and robust engagement with our communities. All of these are part of what we are engaged in to make CLA a destination college.

As always, please submit feedback, questions, or suggestions to cladean@umn.edu.